Soybean Futures Plunge to Lowest Point in Two Years on US-China Trade War Fears

Soybean futures dropped more than 5% to the lowest level in two years on June 19th under the U.S. – China trade war, which has dimmed hopes that U.S. farmers might still have a chance to reprieve from tariff on the crop to take effect next month.

The trade tension between world’s two largest economies keeps escalating since April, followed by the announcement of United States Trade Representative on last Friday, said U.S. will start to impose 25% tariffs on $34 billion of Chinese products on July 6. In retaliation to the U.S. tariffs, China has quickly responded its tariff plan on $34 billion worth of U.S. products, including soybeans and other agricultural products, which is also set to go into effect July 6.

Three days later, Trump on Monday intensified the “Tariffs war” by asking his administration to prepare $200 billion in Chinese for additional tariffs. China fired back with “equal scale” of tariffs on U.S. on soybeans, pork and other agricultural products to firmly against the U.S.’s actions.

Prices of grains and livestock have been negatively affected by the unstable relationship between two trade partners because local traders bet Chinese tariffs would take away a considerable amount of orders. The commodity prices from crude oil to copper also seen gloomy.

Iowa farmers, who earn the living for growing and selling soybeans are estimated to lose up to $624 million for the losing market; over 60,000 pig farmers as well as U.S. meat processors are caught in the crossfire.

On June 19th, the soybean futures plunged more than 7% to its lowest point since 2009.according to Thomson Reuters. After the late morning sell-off on the same day, soybean prices are now more than 10 percent for the year.

Meanwhile, corn futures also reached its bottom level of the six months; wheat and oat futures dropped about 1.4% and 3% respectively, while rough rice futures were slightly lower.

“The dramatic drop today is soybeans because soybeans is first and foremost what the Chinese like to buy from us,” explained by Phil Flynn, senior market analyst at The Price Futures Group.

Minnesota farmer Tim Velde is worried that if the crop price keeps declining, he could be hard to pay for the loan for the for next year’s crop; Farmer Michael Petefish also complained the value of his crop had slashed about $60 an acre due to the falling soybean price. However, the long-term fear they face is that China would seek for a more lasting alternative to U.S. crops.

China consumed over half of U.S. soybean exports in the past years, if China gradually stops buying from U.S., other soybean exporter like Brazil would be the biggest beneficiary.

Farmers could use futures contracts to avoid unexpected loss from the sudden price drop, however, since the actual bushels of grain produced in each crop yield could be affected by the weather or climate issue, it’s hard for farmers to forecast a right time to sell their entire harvest.

Trump has said “trade wars are good and easy to win”, but it would be a tough battle for U.S. farmers.

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